A leader's role: defending capitalism

Beware the enemy within. Business leaders might take a leaf from democrats’ phrasebook: the price of freedom is eternal vigilance. That is because the enemies of democracy and its freedoms are part of the democracy.

The same goes for business. Many enemies of capitalism lie within. When capitalism’s leaders don’t expose and denounce those enemies they risk the freedoms on which capitalism depends.

A parallel is the great damage done to the Catholic church not just by the child-abusing priests but by the bishops and cardinals who covered up. That the Pope in earlier roles did some covering up will slow the recovery of trust and respect.

This obscures the good the church does. As author and “faith adviser” to two United States presidents Jim Wallis told Radio New Zealand on September 28: “Those of us who are people of faith have be the first to … say (religion) has been a force for sectarianism, for patriarchy, for division, for violence (even though it is) also a force for healing and for good and for justice and for social movement.”

As with priests, so with corporations. The activities of some can damage the system. They damage trust.

Gary Hamel of London Business School told the BBC in May: “We know from surveys in the United States (that) only 12 per cent think executives are very ethical or highly ethical.”

Hamel thinks the financial crisis “drove an even bigger wedge between individuals and institutions” and caused “a steady erosion of trust”. Who needs socialists and anti-capitalist greens when capitalists do it to themselves?

Trust is a critical ingredient of capitalism, according to rightwing political scientist Francis Fukuyama who devoted a book to the topic in 1995.

What happens when trust goes? Hamel: “When you become untethered, society will ultimately put some rules back on you.”

And then capitalism works less effectively, for profits, employees and consumers.

This is not a matter only of legality. Not many enemies-of-capitalism-within end up in court or and many don’t deserve to. But that is not the point.

Auckland commercial law professor Susan Watson wrote in September that directors on boards need to apply “care, diligence and skill” and “provide the good sense and leadership that those who repose trust in them justifiably expect”.

So it is not just venality defenders of capitalism need to speak out on (and they fall short even on that). It is also incompetence in its wider sense. Many voters don’t see the difference. Hamel: “The big institutions of society less and less represent their interests.”

That is why the “difficulty of getting proof” defence for not speaking out which one business lobby luminary uses is unconvincing.

Morality and ethics aren’t court matters. But the ripoffs and amateurism in finance companies — and the group of affluent “investors” who cynically creamed the South Canterbury Finance taxpayer guarantee — damaged capitalism’s standing, less spectacularly than the bonus-kings in New York and London but, in the local context, just as effectively.

Those actions tell small investors and sacked employees that self-regulation doesn’t work. The miscreants do things that are perfectly legal, perfectly in conformity with Adam Smith’s “invisible hand” but also perfectly inimical to social order and decency. Smith himself bothered about that. Hamel said: “There is a hole in the soul of business.”

The political response, by voters and parties, is to regulate. Labour here has moved some way back towards the more regulated pre-1984 state.

But too much, or badly designed, regulation is bad for the small investors and employees.

So if leaders of corporations and business lobbies caned those within capitalism who damage trust they would be acting not only in their self-interest but in capitalism’s and the public’s interest. Perhaps it is time for a “defender of capitalism” category in the Top 200 awards.

Business leaders might find voters — and parties — then get in behind.